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Trans-Pacific Partnership decoded: Canada lobbied to be part of trade talks. Now what?

By Madhavi Acharya-Tom YewBusiness Reporter

Wed., June 20, 2012

Canada’s acceptance into the Trans-Pacific Partnership took months of carefully orchestrated behind-the-scenes lobbying by Ottawa.

The lucrative pact would give Canada an entry point to a combined market of 658 million people that’s worth a staggering $20.5 trillion annually.

Canada's entry into the Trans-Pacific Partnership opens up all kinds of questions. For example, is that Canadian butter on those pancakes? (Matthew Mead / AP)

But now that Canada’s involvement is secure, questions remain. Will it herald the beginning of lucrative economic ties with key Asian markets? Or does it mean the beginning of the end of this country’s decades-old milk supply management system?

Opponents say that the deal could drive up the price of milk and eggs and prescription drugs for ordinary Canadians while big, foreign companies rake in profits.

Proponents say Canada can’t afford to be left behind. “Not participating in that would be one thing – but not participating in that when our key trading partners are would be horrible for Canada,” said Walid Hejazi, associate professor of international business at the Rotman School of Management at the University of Toronto.

Here’s a deeper look at the trade pact, what’s in it for Canada, and what’s at stake.

Q: Who’s in it?

A: The founding members were New Zealand, Brunei, Chile and Singapore. In 2008, the U.S., Australia, Peru, Malaysia, and Vietnam joined the pact, which is described as NAFTA for the rising-tiger Asia-Pacific region. Canada and Mexico are now joining, and by this time next year, Japan is expected to join. The pact is designed to be expandable to accommodate new members.

Q: What about China?

A: China is not a member, and isn’t likely to be anytime soon. But Vietnam, Malaysia and Singapore are some of the fastest-growing economies in the region.

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Q: Don’t we already have trade pacts with some of these countries?

A: Canada, the U.S., and Mexico are partners in the North American Free-Trade Agreement. Proponents say that this pact is a kind of NAFTA 2.0 with an emphasis on intellectual property. We have trade ties to other countries through the World Trade Organization, but the latest round of discussions, known as the Doha round, has stalled.

Q: Why does Canada want to be included in TPP?

A: Canada currently does 90 per cent of its trade with the U.S., Europe and Japan. These markets are massive, but they are also slowing down sharply because of aging populations and sky-high debt levels. The countries in the TPP will be hugely important for Canadian companies in the coming decades because of their growth potential and proximity to China, Hejazi said.

Canada had no particular interest in TPP until Mexico and Japan said they wanted to join, said Robert Wolfe, trade expert and School of Policy Studies professor at Queen’s University. “At that point, there’s real money on the table.”

That’s because this pact is all about global value chains. Think of it this way: products that are manufactured today, everything from cars to smartphones, are filled with components that come from many countries around the world.

A really productive firm needs to have access to all those bits and pieces for what you’re making so the imports matter. But it also needs access to other markets to export all those parts.

“If the U.S. and Mexico and Japan improve their ability to participate in global value chains of interest to Canada, and Canada doesn’t share in that enhancement, that’s a problem,” Wolfe said.

“For the U.S. getting more access to Brunei, good luck to them. For the United States, getting better trade relations with Japan and Mexico, we had no choice. We had to ask to play.”

Q: What do other countries want?

A: They want access to our markets. Here’s a typical example: New Zealand dairy farmers would like access to the Canadian market, which limits how much of the market is open to foreigners and imposes steep tariffs on their products.

Q: What would happen to Canada’s supply management in dairy and poultry?

A: There’s no realistic prospect that Canada would eliminate supply management quickly, Wolfe said. But foreign access to the Canadian dairy market, now at about 3 per cent of consumption, may rise to 10 per cent over time. “Would we start to limit the scope of supply management by increasing foreign access to the Canadian market over time? Sure. Where is that going to be felt in Canada? There would be more New Zealand butter.”

Q: What has Canada already agreed to?

A: The publicly available information is limited. “Canada was not an early member of the TPP discussions and is joining late. That’s led many people to ask what did Canada have to give up to get a seat at the table,” Hejazi said. “We don’t know the answer to that.”

Q: What’s happening with copyright?

A: U.S. companies, particularly drug makers, technology companies, and music and movie companies are demanding modernization of Canadian copyright legislation. That legislation is coming, after 15 years of wrangling. It’s not clear if Ottawa will reopen that debate.

Q: What about pharmaceuticals?

A: Critics speculate pharmaceutical makers will demand longer patents on their product, crimping the market for generics and increasing drug costs for Canadian citizens and governments.

Hejazi says there’s a flip side. “At the same time, that protection would make Canada a more attractive place for pharmaceutical companies to invest.”

Q: How prepared are Canadian companies to compete in these international markets?

A: Hejazi argues the talks and the pact require transparency so companies know which markets would be open to foreign competition. “I have a tremendous amount of faith that if Canadian companies are given time to adjust their strategies to a new competitive global environment, they can compete,” Hejazi said. “And when they compete, it creates prosperity.”

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